The burden on bank management gets ever heavier

Mark Carney’s words in Singapore are enough to send a chill down the back of any senior manager in any bank. He said that the succession of scandals:

“mean it is simply untenable now to argue that the problem is one of a few bad apples. The issue is with the barrels in which they are stored”.

“Leaders and senior managers must be personally responsible for setting the cultural norms of their institutions. But in some parts of the financial sector, the link between seniority and accountability had become blurred and, in some cases, severed.”

Management is no longer just responsible for running the organisation for which he or she is responsible: they are also to be legally responsible for setting “the cultural norms” of that organisation. Accordingly, it won’t just be the culprit in any scandal who suffers, or the bank for which they work. Their managers, too, will be made personally to carry the can, whether or not they approved of, or even knew of, the activities concerned.

The erosion of the burden of proof is stunning. Already, managers will have to prove that their actions were not imprudent in any legal case resulting from the current regulatory deluge: under Carney’s Law, even that will not be enough, because now not having the correct (i.e. regulator-approved) “cultural norms” in place could in itself be enough to destroy the career and financial position of a manager.

The implications are wide-ranging, but this clearly puts an added burden on management and the audit function which supports it. In order to cover themselves, management will have to be assured that the products for which they are responsible are working not only within the letter of the regulations and the bank’s own controls, but also are following a culture of customer-care and honesty at all times and under all conditions. The problem, of course, is that culture can be defined differently by different people, so banks will have to impose standards of behaviour that go beyond the letter of the law.

It is hard to see how management and auditors will be able without properly qualified help to determine what standards should be followed, and what cultural norms should be established.

Clearly, therefore, there is a need for banks to take advantage of independent expertise: people with senior-level experience of the areas which will come under the most scrutiny, notably at the “sharp end” of investment banking, and with a profound understanding not just of how traders and other professionals work and even think – poachers turned gamekeepers, in other words.

At Skadi Limited we can offer exactly such expertise. With decades of experience in trading, analysis and management, we can “see” things that less experienced people will miss, helping audit to identify issues that need to be flagged and assisting in the process of presenting those findings on a equal footing to senior management.